On Wednesday, November 2, 2011, The House Committee on Foreign Affairs will hold a markup hearing on H.R. 1905 “The Iran Threat Reduction Act 2011” (Act). As one might have guessed, these new sanctions prohibit U.S. persons from engaging in transactions with Iran related to arms sales, energy, and financial services. They also impose additional reporting requirements on U.S. companies having any dealings in Iran and increase penalties for violations of sanctions regulations imposed under the International Emergency Economic Powers Act (IEEPA). The bill goes into extensive detail on Congress’ findings and sense as to why they believe new sanctions are required. In short, these new proposed sanctions are absolutely devastating…..on U.S. persons and those ordinary Iranians flying on planes that require U.S. parts.

Here are some of the key points of this new bill that will actually lead to a significant amendment or change to the current Iran sanctions regime:

1. Advisory Opinions: The new bill allows for U.S. persons who seek to engage in transactions prohibited under the Act to request an advisory opinion from the U.S. Department of State to determine whether their transaction would be barred under the Act. Anyone operating in accordance with that advisory opinion could be exempted from having sanctions imposed upon them for the activity specified in the advisory opinion.

2. No Judicial Review: Not that its a big surprise to those of us who have been dealing with sanctions for sometime, but the bill explicitly prohibits the imposition of sanctions imposed under the Act from being reviewed by any court. So much for a separation of powers.

3. The Iran Sanctions Act: The Iran Sanctions Act of 1996 (ISA) would be repealed by the passing of this bill. It is a little unclear, but I believe the designations under ISA would be converted into designations under this new Act.

4. U.S. Parents Liable for Foreign Subsidiaries: All U.S. parents would be liable for the actions of their foreign subsidiaries that violate any of the prohibitions of Executive Orders 12957, 12959, and 13059 and any of the corresponding regulations. In essence, this means the Iranian Transactions Regulations would apply to all foreign subsidiaries of U.S. parent corporations.

5. Federal Funds Available to Promote Democracy: The Act would direct the President to provide funding to pro-democratic individuals, organizations, broadcasting, and new media companies working to promote human rights, freedom, and democracy in Iran. These funds would be available to both foreign and domestic individuals and entities.

6. Sanction Everyone: The Act would lead to the imposition of sanctions against the senior officials of the Government of Iran, including the Supreme Leader, the President, Members of the Cabinet, Members of the Assembly of Experts, Members of the Ministry of Intelligence Services, or any Member of the Iranian Revolutionary Guard Corps with the rank of brigadier general and above, including members of paramilitary organizations such as Ansar-e-Hezbollah and Basij-e Mostaz’afin.

7. No More Civil Aviation Licenses: The Act as currently written would prohibit issuance of licenses to export or reexport goods, services, or technology relating to civil aviation of United States origin to Iran and would rescind any such license authorization issued before the date of enactment.

8. Reports on the Central Bank of Iran: The Act would require that the President to report to Congress on the activities of the Central Bank of Iran in relation to its proliferation efforts and support of foreign terrorism.

9. Public Disclosures: Any public U.S. company who had dealings with anyone listed on the Specially Designated Nationals (SDN) List from Iran would be required to disclose such in their annual filings to the Securities Exchange Commission.

10. No Entry, No Talking: The Act would not only deny all officials of the Government of Iran visas to come into the United States, except for those trips required to carry out U.N. business, it would require those Iranian officials allowed into the U.S. to stay within a 25 mile radius of New York City or Washington, D.C.

Perhaps even more interesting (bizarre?) is that the Act would bar all persons employed with the United States Government from contacting in an official or unofficial capacity any person that serves as a representative of the Government of Iran and presents a threat to the United States or is affiliated with terrorist organizations. This would effectively bar communications all communication with officials from the Government of Iran since the entire purpose of imposing sanctions against Iran is because Iran is deemed to present a threat to the United States. There is a waiver exemption that the President can invoke to avoid this ban; however, he has to request Congress’ permission to do so and it would require a showing of an unusual and extraordinary threat to the national security of the United States to be invoked.

11. Increase in IEEPA Penalties: The Act would increase IEEPA civil penalties to twice the value of the transaction; rather than not to exceed $250,000 or twice the value of the transaction. This is the biggest change and the one that will likely draw the most protest.

There is so much more that could be included in this bill that I just don’t have time to comment on right now. The important thing to remember is that this bill is not law yet and many of the prohibitions and requirements noted above may never become law. However, this bill gives one the sense that the next round of sanctions, for better or worse, will be absolutely severe on U.S. persons, although their effectiveness on those dealing with Iran outside of the United States remains in question. It also gives a lot of insight as to how Congress is approaching sanctions towards Iran and for those engaging in transactions with Iran its not a pretty sight.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.